Despite AOL's affirmation of a continued turnaround, the company failed to beat analysts’ revenue expectations for the first quarter of the year.
Even more surprising to some analysts was the source of AOL’s weakness during the period: its highly touted third-party ad network business.
Traffic acquisition costs related to AOL Networks -- which includes Advertising.com, AdTech, Pictela, Be On, and AOL On -- increased by 11% during the quarter, which the company conceded were faster than third-party network revenue.
Third-party network revenue increased by 10% during the quarter, compared with 31% growth over the previous three-month period.
As the company reported on Wednesday, AOL Networks adjusted OIBDA decreased year-over-year due to higher research and product development costs, which it attributed to investment in its demand-side platform, Adlearn Open Platform and the launch of its supply-side platform, AdTech Marketplace.
“It appears that AOL sold more of its owned inventory and there was a shift in revenues from Networks to Brands,” Victor Anthony, an analyst at Topeka Capital Markets, wrote in a research note. “OIBDA loss of $2.5mm, missed our $1.8mm profit estimate and the consensus of $5mm due to investments in video and their SSP and DSP platforms.”
Total sales during the quarter amounted to $538.3 million, which fell short of analysts' estimates of $542.1 million for the period.
True to form, Tim Armstrong, chairman and CEO of AOL, expressed pure confidence in the company's prospects on Wednesday. “We will continue to aggressively drive the company toward near-and long-term growth," he said.
During the first quarter, total revenue grew 2% year-over-year, which AOL ascribed largely to strong global ad revenue. In fact, marking the second consecutive quarter of annual growth, global ad revenue grew 9% year-over-year.
The company also reported 6% growth in domestic display revenue, which amounted to about $140 million, and according to AOL, reflected an increase in AOL Properties impressions sold, including video and mobile inventory, and improved reserved pricing related to the sales of video and other premium formats.
At the end of March, AOL had $467.8 million of cash and equivalents, with which it can continue to invest in new technology and acquisitions.
Revenue from AOL’s Membership Group, which includes its dial-up business, saw a 9% decline in subscription revenue (to about $165 million) driven by 15% fewer domestic AOL-brand access subscribers year-over-year.